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McCulloch v. Maryland (1819)

Citation: 17 U.S. (4 Wheat.) 316 (1819) Court: Supreme Court of the United States Author: Chief Justice John Marshall, for a unanimous Court (7-0)

Parties

James McCulloch — cashier of the Baltimore branch of the Second Bank of the United States. The Bank was a private corporation chartered by Congress in 1816 to handle federal deposits, stabilize currency, and lend to private borrowers. McCulloch was chosen as defendant by agreement of the parties because his official acts (refusing to pay Maryland's tax) created a clean test case.

The State of Maryland — which in 1818 had enacted a law imposing an annual tax of $15,000 on any bank operating in Maryland without a state charter. In practice, the Second Bank of the United States was the only institution that fit. Maryland was one of several states whose legislatures were openly hostile to the federal Bank, and the tax was an attempt to drive the Baltimore branch out of business.

The case was argued by Daniel Webster and William Pinkney for McCulloch and the Bank; Luther Martin (by then seventy-five years old and past his prime) argued for Maryland.

Facts

The Second Bank of the United States was unpopular in much of the country, especially in states whose own state-chartered banks competed with it for deposits and notes. Between 1817 and 1819 a wave of state-level tax laws targeted the federal Bank's branches. Maryland's version — the $15,000 annual tax, payable in specie or equivalent — was a representative example. McCulloch, acting on orders from the Bank's Baltimore directors, refused to pay.

Maryland sued in state court and won. The Maryland Court of Appeals affirmed. The case went to the US Supreme Court on a writ of error.

Two questions were before the Court, both going to first principles of federal constitutional authority. The Bank's constitutionality — whether Congress had the power to create it in the first place — had been debated since Alexander Hamilton and Thomas Jefferson argued opposite sides of it to President Washington in 1791. Washington had sided with Hamilton, Congress had chartered the First Bank (1791-1811) and then the Second (1816), but the Supreme Court had never ruled on the question. Maryland's suit forced the issue.

Question presented

  1. Does Congress have the constitutional authority to charter the Second Bank of the United States?
  2. If so, may a state tax the operations of a federal instrumentality operating within its borders?

Holding

Yes on the first question. No on the second.

  1. Congress has the power to charter a national bank. The power is not expressly listed in Article I, §8 of the Constitution, but it is a permissible exercise of the Necessary and Proper Clause (Art. I, §8, cl. 18) in conjunction with Congress's enumerated fiscal and commercial powers (taxing, borrowing, regulating commerce, coining money).
  1. Maryland's tax on the Bank is unconstitutional. The states cannot tax federal instrumentalities, because "the power to tax involves the power to destroy," and allowing one sovereign to exercise destructive power over an agency of the other would be inconsistent with the supremacy of federal law under Article VI.

The decision was unanimous: 7-0.

Reasoning

Marshall's opinion is the longest he ever wrote for the Court, and it is the keystone of early American constitutional law. The reasoning proceeds in three distinct movements.

First: the nature of the federal government. Marshall opens with a direct rejection of Maryland's argument that the federal government is a creature of the states and derives its authority only from state-level delegation. "The government of the Union," Marshall wrote at 17 U.S. at 404-405, "though limited in its powers, is supreme within its sphere of action. This would seem to result, necessarily, from its nature. It is the government of all; its powers are delegated by all; it represents all, and acts for all." This is a direct textual rejection of compact theory (the theory that the Constitution is a treaty among sovereign states). The Constitution, Marshall held, was ratified by the people of the United States — ratified, not merely approved by state legislatures — and the federal government it created is a government of the whole people, not an agent of the several state governments.

This framing did the analytical work for everything that followed. If the federal government is an agent of the states, then the states, as principals, can tax or regulate its operations. If the federal government is a government in its own right, supreme within its enumerated powers, then it is no more subject to state taxation than the state governments are subject to federal taxation.

Second: implied powers. Marshall then turned to the necessary-and-proper clause. Maryland's argument had been that the list of enumerated powers in Article I, §8 is exhaustive: if a power is not in the list, Congress cannot exercise it, and "necessary and proper" means "absolutely indispensable." Chartering a bank is not in the list; bank-chartering is not indispensable to any listed power (the government can collect taxes, borrow money, etc., without its own bank); therefore the Bank is unconstitutional.

Marshall rejected each step. The enumerated-powers list, he held, cannot be exhaustive in the way Maryland insisted, because the Constitution does not contain (and cannot possibly contain) every specific means by which each enumerated end is to be accomplished. The necessary-and-proper clause exists precisely to give Congress discretion in choosing means. "Necessary" in that clause does not mean "absolutely indispensable"; it means "appropriate" or "convenient." The clause's inclusion among the powers granted, rather than among the restrictions, reinforces this.

Then came the rule. At 17 U.S. at 421: "Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional." This is the canonical American formulation of the doctrine of implied powers. Every subsequent case on the scope of congressional authority under the necessary-and-proper clause works within the framework this sentence established.

Applied to the Bank: taxing, borrowing, regulating commerce, paying federal debts — all enumerated powers. A national bank is a "plainly adapted" means to those ends. Therefore the Bank is a constitutional exercise of implied power.

Third: state taxation of federal instrumentalities. Having established that the Bank is constitutional, Marshall turned to Maryland's tax. Here he made the line that's now a cliché: "the power to tax involves the power to destroy" (17 U.S. at 431). The logic is structural. If Maryland can tax the Bank at $15,000, it can tax it at $15 million; a tax set high enough is functionally a prohibition. If the states can effectively prohibit what the federal government has constitutionally authorized, federal supremacy is a paper rule. Therefore the Supremacy Clause of Article VI must be read to preclude state taxation of federal instrumentalities.

The rule: states cannot tax the operations of a federal instrumentality. States can tax the real property the Bank owns (because that's a tax on property within the state's normal jurisdiction, not on the federal function), and states can tax the private holdings of Bank shareholders on the same terms as other property. But they cannot tax the federal Bank as a federal Bank.

Significance

McCulloch is the case that made the federal government actually federal. Before 1819, whether the Constitution created a central government with independent authority or merely a coordinating agent of the states was genuinely contested. After 1819, it was settled at the level of the Supreme Court's doctrine, and every later case on federalism worked within the framework Marshall had laid out.

Three specific doctrinal strands run directly out of McCulloch:

Implied powers. The "let the end be legitimate" formulation is cited in every modern case on the scope of congressional power. It was invoked in the New Deal cases that upheld the Social Security Act (Helvering v. Davis, 301 U.S. 619 (1937)), in the civil rights cases that upheld Title II's public-accommodations provisions under the Commerce Clause (Heart of Atlanta Motel v. United States, 379 U.S. 241 (1964)), and in the Affordable Care Act cases (NFIB v. Sebelius, 567 U.S. 519 (2012)). Every one of these rests on the proposition that Congress may choose appropriate means to enumerated ends, which is McCulloch's proposition.

The doctrine of intergovernmental immunity. States cannot tax federal instrumentalities; the federal government cannot tax state instrumentalities (the reciprocal was established in Collector v. Day, 78 U.S. 113 (1870)). The exact scope of what counts as an "instrumentality" has been the subject of a long line of cases (South Carolina v. Baker, 485 U.S. 505 (1988), narrowed it considerably for state bonds), but the root principle is McCulloch.

The supremacy of federal law. When state law and federal law conflict within a domain where Congress has acted, federal law controls. This reads trivially today, but in 1819 it was a live question, and Marshall's answer is the basis of every modern preemption case.

There is also a historical point worth making. McCulloch was not popularly received. Andrew Jackson, elected president nine years later, openly disagreed with the decision and, when Congress re-chartered the Second Bank in 1832, vetoed the re-charter with a message that explicitly denied the Court's authority to bind the political branches on the Bank's constitutionality. The Bank died; Jackson's view, in that moment, prevailed. The doctrine of implied powers, though, survived. It had become too load-bearing to abandon.

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